Employers urged to save pay documents

The Lilly Ledbetter Fair Pay Act of 2009 has led many employers to re-examine their document retention policies to be prepared should they be sued under its provisions, but some experts say more work needs to be done.

The act provides that every paycheck resulting from a previous discriminatory pay decision constitutes a violation of several federal laws, meaning employers may have to go back decades to provide documentation to defend against such claims.

A survey released in August 2009 by Lincolnshire, Ill.-based Hewitt Associates Inc. of 1,156 organizations found that 88% were aware of the law. It found that 38% had conducted a pay-equity analysis, but 36% had taken no action in response to the law.

Jeffrey D. Polsky, a partner with law firm Fox Rothschild L.L.P. in San Francisco, said, “Now that litigation over compensation decisions can potentially reach back 20 years or more, it's become important for employers to hold onto records of when and why certain compensation decisions were made.”

Philip K. Miles III, an associate with State College, Pa.-based McQuaide Blasko Attorneys at Law, said: “Employers should be looking at how they document their compensation decisions, with an eye toward building a record that can be used many years down the line. Today's compensation decision could result under the Fair Pay Act in a claim several years down the road, and long after the people involved in the compensation decision have moved on. It may be the only thing they have.”

Liz Snyder, a senior consultant with Hewitt Associates in Lincolnshire, said, employers “are a little bit confused about what they need to keep indefinitely, but what we're seeing and what we're telling them is, anything related to their pay decisions—which is not only their payroll files and their compensation programs but also performance reviews and any of the decisions and guidelines around starting pay, promotional pay, merit increases”—should be retained.

“Some employers also are looking more seriously at conducting pay-equity analyses,” Ms. Snyder said.

However, Mark W. Batten, a partner with law firm Proskauer Rose L.L.P. in Boston, said, “In my experience, most employers are still not doing what they need to do in that area.”

Richard D. Tuschman, an attorney with Epstein Becker & Green P.C. in Miami, said his impression is that “most employers don't have real good records on why pay decisions are made at any stage of the game, much less retaining records that go back several years or more.”

However, Ms. Snyder said, “I think they're moving in the right direction” in re-evaluating their record retention policies.

“I think that employers have become a lot more aware that they need to make sure that their procedures and decisions are objectively verifiable and objectively reasonable, because things can live on,” said Martha J. Zackin, of counsel with law firm Mintz Levin Cohn Ferris Glovsky & Popeo P.C. in Boston.

Observers note, however, that while employers may have the right policy in place, they may have not adequately trained their managers and supervisors in their policies' implementation.

“Individual managers and supervisors can have the biggest impact” on a company's potential risk in this area, said Fred Crandall, a senior consultant with Towers Watson & Co. in Chicago.

“Employers really need to firm up their structure, firm up their training of managers, have specific criteria for compensation decision-making, and then monitor it so the criteria are being followed,” Ms. Snyder said.